The Telegraph has run that story from Oxford Economics about UK living standards surpassing those in the US.

But, and here\’s the crucial part, they\’ve entirely dropped the caveats about market exchange rates and PPP. Simply missed them out.

Shame, Ms. Lucy Cockcroft, shame on you. You\’ve entirely missed the point of the whole story.

10 thoughts on “Oh Dear”

  1. Yes, so far only the BBC has managed to report it correctly.

    You’re not quite right that they missed the whole point of the story though. The point of the story is that UK incomes converted into dollars (or any currency in the world) are higher than US incomes in that currency. The PPP thing is old news.

    I’d also add though that Oxford Economics can’t escape some blame here if this quote is accurate: The UK has been catching up steadily with living standards in the US since 2001, so it is a well-established trend rather than simply the result of currency fluctuations.”

  2. “US is 8th. UK is 27th in the world.”

    Interesting how two of the non-tax havens in that list above the US are Norway and Ireland. I can see why Norway is there: all that oil revenue spread over few people. But Ireland is a surprise.

  3. Glenn’s two very different statistics highlight another complicating factor: calculating PPP accurately is impossible, and I’d question whether (between Western economies), it’s even possible to come up with a figure that isn’t totally meaningless.

    Market exchange rates are the correct measure of how much we have to spend on tradeable goods (i.e. “most stuff”). Attempts to bring this closer to a measure of quality-of-life – whether you’re trying to factor in the fact that people in one country don’t have to work as long, or live longer, or have better healthcare, or have more land so pay less rent per square metre (the last of which is part of PPP calculations) – involve massive amounts of hypothesising and deduction.

    Oddly enough, pro-US types tend to focus on PPP and exclude the other, exactly-the-same types of adjusting GDP data to quality-of-life. Not that they’d rather cook the figures to make America look good or anything…

  4. “closer to a measure of quality-of-life”

    I agree. I was utterly shocked when I discovered Americans commonly have just 2 weeks a year of holiday. That movie “City Slickers” suddenly made a whole lot more sense.

  5. I’m not so sure I’d agree with John’s comments although I would agree that these things are tricky.

    It’s also quite difficult to compare living standards across decades, but no-one would think it is sensible to note that as average salaries were £5k in 1980 and are now £25k we are five times richer – you need to adjust for purchasing power.

    Even if you do use MER some kind of averaging seems sensible. The pound has been up to $2.11 and down to $1.75 in the last two years. Thus UK ‘living standards’ as so measured have risen by 20% vis-a-vis US living standards, yet surely no-one in either country would think that is right.

    I would agree with John’s point that if you are going to adjust for PPP you should then consider adjusting for all manner of other factors – such as holidays, travel to work, etc, but I’m not sure the US comes off that badly compared to the UK.

  6. Surely the kind of purchasing power you’re talking about in the second paragraph is captured by MER (i.e. if the US has 10% annual inflation and the UK has 5% annual inflation, this is usually reflected quite rapidly in forex differentials between the two countries?)

    However, I’d agree that using day-to-day fluctuations in MER as proxies for changes in relative incomes isn’t sensible.

    And that more generally, the belief that GDP at PPP without other QoL adjustments is Definitely The Right Way To Do Things is just as silly as the belief that any other measure is Definitely The Right Way To Do Things…

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